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Trang 32007 with a 35% share (Aukutsionek et al 2007) Therefore, a considerable number of management teams of Russian JSCs are headed by (or include) manager-owners On the other hand, in the last decade, a tendency toward the separation of ownership and management has become more and more noticeable, and the old Soviet-style managerial teams are being substituted
by a new generation of professionally trained hired managers They are expected to be more effective at improving company performance by facili-tating the large-scale market-oriented restructuring needed by the majority
of privatized enterprises However, the results of empirical surveys provide evidence that the privatization of initially state-owned manufacturing firms
in Russia did not result in significant increases in productivity (Brown et al 2004) Bhaumik and Estrin (2005) discovered that Russian industrial firms were unresponsive to almost all the normal economic drivers In an attempt
to explain the difference between two transitional countries, China and Russia, they discussed the managerial quality in the economies in transition and its influence on company performance
Due to methodological constraints and lack of information available for analysis, the composition of management teams and the role of CEO char-acteristics in enterprise restructuring do not very often become a subject of empirical research For example, even public companies, which were obliged
by law to disclose information about their activities, were not ready to present the information regarding the work of the general directors S&P showed that, in 2006, the terms and conditions of the agreement with the general director were disclosed by only 1% of the companies, the remuneration of
Trang 4Management Team and Firm Restructuring 149
senior managers, by 16%, and information about the manner in which agement remuneration depended on company performance, by only 17% (Standard & Poor’s 2006, p 13) Information arrays, available for experts, are related to specific groups of companies, such as, for example, a study
man-of Rachinsky (2002) based on a sampling man-of 110 large Russian enterprises, which are members of the Russian Trading System Stock Exchange (RTS),
or a study by Roschin and Solntsev (2006) containing information about job dismissals and appointments of CEOs, published in 1999–2004 by the
new company owners respond to changes in the composition of ment teams in a situation of broadly recognized shortages of professionals, especially in the regions of Russia Furthermore, the same could be said for the poor level of trust between owners and managers
manage-By 2005, the cohort of general directors of Russian industrial enterprises consisted of former “red executives” and a new generation of managers who came from business or from government bureaucracy (so-called politically connected CEOs) It is not clear which of the two is really driving the restruc-turing of enterprises Neither is it clear whether the status of the general director, that is, owner or hired manager, is correlated with the intensity
of a company’s modernization and restructuring The main trends for the formation of a cohort of CEOs and managerial teams are discovered on the basis of a comparative analysis of independent companies and enterprises, included in the holding company groups (HCG).2 The analysis is based on the results of a Japan–Russia large-scale survey of Russian joint-stock com-panies (JSCs) conducted in 2005.3
The remainder of this chapter is organized as follows: The first section
is a comparative analysis of the basic characteristics of Russian JSC general directors and an exploration of common features and differences from the top managers in countries with developed market economies The second section is an exploration of how the composition of the management team depends on the arrival of new company owners The third section contains the main hypothesis regarding the influence of the composition of the man-agement teams, changes of principal owners, and business environment on the intensity of enterprise restructuring and a discussion of the results of their empirical testing The fourth section includes a summary of the results and the conclusion
General directors of Russian JSCs: “Red executives,”
politically connected CEOs, and new professional managers
Our survey data make it possible to present a portrait of recent general directors of JSCs and to compare the findings with those of other empiri-cal studies First, we discover that the average age of a JSC general director
is 49.4 years.4 This is very close to the recent results received by the Center
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of Labor Studies of SU-HSE based on the information of Rosstat statistical data (49 years old)5 and is compared to the earlier estimations of Rachinsky (2002) (50 years of age) related to 2001 Second, the directors in independ-ent JSCs and group-member companies have essential qualitative differ-ences: directors at independent enterprises, on the average, are considerably older; among them, the share of directors under 40 years old is lower, and the share of directors above retirement age is higher One explanation for this is the fact that a considerable percentage of CEOs had already become shareholders in the course of privatization
Both in independent JSCs and in holding members, the director’s age
is essentially related to whether he is a hired manager or a large business owner For example, the average age of directors who are large shareholders exceeds that of hired top managers without stake in company stock owner-ship by four to six years Among them, the share of directors younger than
40 is twice as low, and for managers/heads of holding companies, it is three times as low Furthermore, directors who are large shareholders at group-member companies are younger than those at independent JSCs: for exam-ple, if only 33% of them are older than 50 in the first group, more than 59%
of them are above that age in independent businesses
There are differences, although not very significant, regarding the level of education of the chief executive officers In group-member companies, in contrast with independent JSCs, the share of professional managers having education in economics or management or an MBA (28.4% in the entire sam-ple) is higher (by almost 7 and 3 percentage points, respectively) The most prominent trend is the employment of professional managers in HCGs
At present, almost 15% of Russian JSCs have managers with job rience at a Western company, but, in the group-member companies, the share of managers with such job experience is two times higher (20.1% and 11.3%, respectively) than in independent JSCs As far as hired manag-ers is concerned, the share of directors having job experience at a Western company is practically the same, but, among the directors-large owners in group-member companies, the share of managers with such experience is significantly larger (20.0% and 7.8%, respectively)
expe-According to survey results, 35.6% of general directors were hired ers without a share in company stock ownership In new appointments of
manag-2005, their share was 50%, which is evidence of the tendency for the tion of ownership and control in stable economic growth.6 “Red executives” who became large owners in the course of privatization are gradually leav-ing CEO positions By the time of our survey in 2005, only 39% of general directors-large owners in the entire sample had more than 10 years of job experience as company CEOs
separa-We found that, in Russian companies, the turnover of hired managers is rather high: one-third of directors in the whole sample and as many in inde-pendent JSCs were appointed within one year of the time when the survey
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was conducted The average number of years in the position of a Russian JSC general director, according to our survey results, is 8.4 years This number
is not much higher than it is in other countries, where, according to Booz Allen Hamilton’s study of CEO turnover in the world’s 2,500 largest public companies defined by their market capitalization, it is 7.8 years (Lucier et al 2007) However, in our case, the average number of years in a CEO posi-tion in the entire sample of general directors masked essential differences between directors-large owners and directors that do not own shares For example, in the first case, it is more than twice as high, 9.6 years vs 4.5
In all categories of top managers analyzed in the survey conducted in the first half of 2005, the average time in one position was 6.5 years At the same time,
it was 5.3 years when large owners did not take a direct part in the enterprise management and 4.0 years when the managerial team was headed by a hired general director and large owners were not involved in the management
Let us briefly overview the recruiting sources of general directors, that
is, the prior job occupation of the current general director On the whole, according to our data, incumbents, , that is, those who previously worked
at the same enterprise in another position, made up the larger part, 61%,
of the general directors This is typical for JSCs situated in different ments (Moscow, regional capitals, noncapital cities, urban settlements, and villages) We found no differences in the share of directors-incumbents in terms of industry affiliation, except for chemistry and petrochemistry.7
settle-Recruiting sources have essential differences depending on the status of the general director (Table 6.1) Therefore, in independent enterprises and
in group-member companies, three-quarters of the directors, who are large shareholders of the JSC, are incumbents.8 With regard to hired directors with-out company shares, at independent enterprises, almost half of them (47.7%) are incumbents as well The share of incumbents among hired managers in group-member companies is much smaller (30.2%) The modest share of the incumbents within group-member companies corresponds with the fact that the main source of the general directors’ recruitment within group-member companies is the rotation of the CEOs within the group The appointment of successful CEOs from one group-member firm to another contributes to the rapid transfer of management knowledge and skills and, therefore, is a prereq-uisite for the dissemination of common management standards within the group and of faster adaptation of new group entrants At independent JSCs, outside owners quite frequently appoint successful top managers without job experience in a particular industry (in 28.4% of cases) In contrast, in group-member companies, such practices occur at one half that rate
One in four directors has work experience in government bodies in the privatization period; meanwhile, directors in group-member companies have such experience even more frequently, one in three On the whole, the share
post-of general directors with job experience at the state bodies is by 11 percentage points larger at JSCs with more than 1,000 employees, since the administrative
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resources of the state bureaucracy in the 1990s–2000s made it easier for the officials to acquire the most attractive (and as a rule, larger) enterprises
On the other hand, the survey results prove evidence that, among CEOs
in the past elite of functionaries, the share of directors-large shareholders and directors-hired managers is equal This demonstrates that, in an unsta-ble institutional environment and with an increased involvement of the state in the economy, business owners are interested in developing neces-sary relationships with state officials by appointing managers with appro-priate experience and personal contacts
The question of whether or not there are any qualitative differences in the top managers in the capital and provinces will be examined We compare the key indicators of age, education, and job experience by status of location (Table 6.2).9 A comparison of the main qualitative characteristics of CEOs by status of location has shown the absence of significant differences, which proves a trend toward the formation of a national market of top managers The leading recruitment companies report that two–three years is the average amount of time spent in a management position More and more often, mid-dle-level managers of large companies receive a promotion in other regions of Russia and change location (Pal’shin & Goverdovskaya 2007) Many compa-nies with their units in other regions of Russia prefer to send managers from the central office or from smooth-running large regional offices to improve the quality of management in the provinces (Goncharova 2008)
The composition of management teams as
the decision of main shareholders
In 2001–2004, as proved by the survey data, general directors were changed
at more than one-third of joint-stock companies (almost 39%) The intensity
of the turnover was the same in different types of settlements (Moscow, regional capitals, noncapital cities, urban settlements, and villages)
It is evident that changing the controlling owner, with a high likelihood ratio, entails not only changing the general directors (Table 6.3) but also subsequently renewing managers at economic departments in order to pro-vide control over financial flows.10 This trend has become common for inde-pendent enterprises and for group-member companies According to the results of our survey, at least in one half of the cases, changing owners is accompanied by changing general directors The scale of such a change of general directors following the arrival of new controlling owners in Russia
is considerably higher (more than twice) than it is in countries with a stable market economy For example, Booz Allen Hamilton’s survey provides evi-dence that the share of CEOs who left their company after the controlling owner changed was 18% in 2005 and 22% in 2006 (Lucier et al 2007) For group-member companies, the frequency of the appearance of a new gen-eral director is still higher due to the fact that entering HCGs introduces
Trang 10Management Team and Firm Restructuring 155
significant changes in the ownership and corporate control structures (Avdasheva 2007)
The turnover of general directors on the shareholders’ initiative, as denced by numerous studies, is determined by the achieved and expected results of JSCs (efficiency and growth of market capitalization) and lack of trust on behalf of the shareholders (an agent problem) Recent results pre-sented by Jenter and Kanaan (2008) suggest that the standard CEO turnover model should be extended by capturing bad industry or market perform-ance They show that a decline in the industry component of firm per-formance from its 75th to its 25th percentile increases the probability of forced CEO turnover by approximately 50% In Russian joint-stock com-panies, a considerable percentage of general directors (exceeding 59%) are forced to leave their positions on the shareholders’ initiative This percent-age is much higher than that in other countries, where, according to Booz Allen Hamilton’s research of 2006, approximately one in three CEOs was dismissed due to a decision of shareholders who were unsatisfied with the results of the past activity of the director or concerned about the current situation and the company prospects (the last reason has become a more and more noticeable trend in the recent years) (Lucier et al 2007)
evi-In the opinion of Shekshnya (2006), based on the results of a survey and interviews with general directors, shareholders, and company personnel,11
a hired Russian general director has not yet become a CEO in the Western sense He “plays a restricted number of parts, consciously excluding oth-ers from the field of his responsibility; he is concentrated on himself, the
Table 6.3 Change of general director/board chairman at independent enterprises
and HCGs depending on changes of main company shareholders in 2001–2004 centage of respondents who answered)
(per-Change of main shareholder
Trang 11156 Organization and Development of Russian Business
shareholders and the important officials to the prejudice of paying tion to the customers, employees and partners; he considers his work to be
atten-a meatten-ans for atten-achievement of more importatten-ant life objectives not relatten-ated to it,
he plans his actions, predominantly bearing in mind a short-term planning horizon” (p 30, translated from Russian) Such an assessment seems reason-able Shekshnya explains this situation in several ways: the higher social status of the entrepreneur as compared to that of a comparably or highly paid employee and the orientation of the most capable potential CEOs to entrepreneurship; the presence of a redundantly high part of the owners in the operational management, which prevents managers from realizing their potentials; and, most importantly, the absence of professional training of the business leaders in the companies, which should be a priority task for its first executive The additional characteristics completing the portrait of
a Russian CEO derived from our survey came from the survey of 300 firms
in 26 regions and 39 Russian cities (Radaev 2008) The evidence is clear that managers of new firms established after privatization tend to be more authoritarian than managers appointed under the socialist regime
An ideal top manager, as clearly shown by Adizes (2006), does not exist because the roles the individual is required to play are too large; therefore, the task of the general director should be to build a team, in which a syner-getic effect is achieved from using certain capabilities and strong competen-cies of team members Therefore, there are only a few such managers in the Russian market A usually effective trend in Russia is for owners to keep in mind that the most difficult questions of operative management are to be resolved at the moment and, therefore, to appoint those CEOs who could
do such tasks quickly using strict and authoritarian methods When a pany is in a new business and institutional environment, the owners find it necessary to replace the general director and redefine his/her key objective for a limited period of time For these reasons, the median term of a hired general direction in a Russian JSC is only three years Such a term might per-mit an individual to fulfill one or two relatively important responsibilities but would be absolutely inadequate for the implementation of a developed strategy
com-The survey results show that, differently from turnover of the general director, managerial turnover at the middle level is not significantly related
to the arrival of new enterprise owners Developing a management team
is mainly a prerogative of the first executive officer The arrival of a new CEO, as evidenced by the work practice of Russian companies, has grave consequences for the entire managerial team and the personnel (Figure 6.1)
In the case of a director’s dismissal on the shareholders’ initiative, the nomic departments were considerably renovated at almost half of the inde-pendent enterprises and group-member companies At the same time, the management staff of manufacturing departments was subject to a lesser degree of personnel reshuffling Such practice was mentioned by 22% of the